Markets (still) aren’t too worried about the debt ceiling. Markets are sometimes wrong.

[dkf]

In communications out of the Obama administration lately, you almost detect a sense of frustration. Not just with Congressional Republicans. There's also frustration with financial markets, which aren't reacting with the kind of hyperventilation one might expect when a default by the U.S. government is being discussed as a plausible outcome of another debt ceiling stand-off.


Other measures of market fears tell a similar story: Yeah, markets don't love the direction things are going in Washington, but nobody is panicking. The fact that a government shutdown in and of itself hasn't caused big swings in stock and bond markets is no surprise -- the 1995 government shutdowns caused barely a ripple.

But it's a little odder that there is only the barest hint that the investors who drive markets are pricing in a meaningful risk that the government will default on its obligations (in the event Congress refuses to raise the debt ceiling by roughly Oct. 17), or that such an event could cause major damage to the economy. John Makin of the American Enterprise Institute argued in an article this week that the seeds of a recession in 2014 are being planted now, in part by the debt standoff. But there is no sign that the hedge funds and other money managers with billions on the line agree with him

The Obama administration appears distressed by the paradox. On Thursday, for example, the Treasury Department issued a report titled "The Potential Macroeconomic Effect of Debt Ceiling Brinksmanship" that really could have been titled "What's wrong with you people! Run for the hills!" It is full of charts showing how disastrous the last debt ceiling showdown, in August 2011, was for markets and the economy: Consumer and business confidence measures plummeted, and the premium that businesses and homeowners had to pay to borrow money skyrocketed.

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/10/04/markets-still-arent-too-worried-about-the-debt-ceiling-markets-are-sometimes-wrong/

[Recursion]

1. I think the past 5 years should have shaken our faith in the markets' risk assessment skills (nt)

[dkf]

3. I thought this tweet said it all...

@RoelD_: 5 years ago. RT “@TBTFLive: Lehman, an investment-grade bank whose audited statements claim $40bn in liquid assets needs a rescue.”

[geek tragedy]

2. Wall Street still thinks it can influence the Teabilly Traitors in the House.

They can't. The House GOP is a bunch of nihilists who want a collapse of modern society.

They want a default.

Our only concern should be making them own the consequences.